Figure 16-5
-Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that such that it charges a fixed fee and a per-unit price equal to the competitive price. (This is also called an optimal two-part tariff.) What is the quantity it should produce?
A) 240 units
B) 320 units
C) 480 units
D) 560 units

Question

Figure 16-5 
-Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that such that it charges a fixed fee and a per-unit price equal to the competitive price. (This is also called an optimal two-part tariff.) What is the quantity it should produce?
A) 240 units 
B) 320 units 
C) 480 units 
D) 560 units

Quizplus · Accepted Answer

To find the optimal quantity, we need to find where marginal cost (MC) equals the per-unit price charged to consumers. In this case, the per-unit price charged to consumers is the competitive price, which is $10. So we need to find where MC = $10. Looking at the diagram, we can see that MC intersects with the demand curve at a quantity of 480 units. Therefore, the firm should produce 480 units in order to maximize its profit using a two-part pricing strategy.

Figure 16-5 -Refer to Figure 16-5. Suppose the Firm Represented in the Represented